There’s no other way of saying it, Unilever’s (LSE: ULVR) (NYSE: UL.US) full-year 2014 results, unveiled last week were disappointing. Underlying sales rose 2.9% during 2014, compared to analysts’ estimate for 3.1%. Further, management warned that this lacklustre growth rate would continue into 2015.
A warning
Unilever’s results are a warning to shareholders of Reckitt Benckiser (LSE: RB), PZ Cussons (LSE: PZC) and SABMiller (LSE: SAB).
You see, Unilever — which sells everything from Ben & Jerry’s ice cream to Lipton tea and Flora spread — is struggling to find growth. Emerging markets, which used to be key growth regions for the company, are no longer a sure-fire gateway to growth. Competition from local brands, as well as slowing economic growth are two factors now weighing on Unilever’s sales growth within these regions.
For example, during 2013 Unilever’s underlying sales growth within developing markets expanded by 7.8%. However, during 2014 this growth rate had halved to 2.1%. Indonesia, India, Turkey and the Philippines delivered a year of double-digit growth, while growth in Africa and countries such as China and Thailand was below historical run rates.
However, while emerging markets struggled, sales within the America’s has started to pick up. Underling sales growth in the America’s came in at 4.6% during 2013 and 6.3% during 2014. Nevertheless, sales growth in the Americas alone can’t offset slumping emerging market demand. As a result, City analysts are now concerned that Unilever’s peers will report similar growing pains.
Struggling to grow
It seems as if emerging markets are no longer the growth drivers they once were. It’s not just Unilever reporting slowing growth in these regions. SABMiller noted a 7% decline in beverage volumes sold across Asia Pacific during the group’s third quarter ended 31 December 2014 — a far cry from the 6% organic volume growth reported for the same period last year. Volumes sold in Africa rose by 4%, Latin America 2%, Europe 2% and North America -3%, compared to volume growth of 5%, 3% -2% -2% for each region respectively in the year ago period. These figures clearly show that emerging markets are no longer the growth engines they once were.
Additionally, Reckitt commented back in October that the group would miss its initial sales forecast this year as, once again, weak markets across South East Asia and Latin America would hit growth overall.
Unfortunately, of the four companies here, PZ Cussons is likely to be more affected than most by slowing growth within emerging markets. Nigeria is a key market for the company, but Nigeria’s economy is highly reliant on the price of oil and falling oil prices have already statted to affect Cussons’ profitability.
In particular, for the half year to 30 November 2014, Cussons’ reported that operating profits had declined by 4% compared to the year ago period.
Thinking about the long term
So overall, it looks as if emerging markets are no longer the growth drivers they once were, which could start to become a serious problem for Unilever, Reckitt, SAB and Cussons. Shareholders might have to get used to slower growth rates in the future.
